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Switch your early annuity distributions in midstream

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in Small Business Tax,Small Business Tax Deduction Strategies

Is most of your money tied up in investments? You're certainly not alone. But that may create a cash crunch if you need funds in a hurry for an emergency or an unexpected expense.

Strategy: Tap into an annuity if you need cash in a pinch. Under the tax rules for annuity distributions, only a portion of the payout is taxable while the remainder is treated as a tax-free return of capital. The taxable portion is figured under the "exclusion ratio" for annuity distributions.

But yet another obstacle exists for some taxpayers. If you're under age 59 1/2 when you withdraw the funds, you're stuck with paying a 10 percent penalty, unless you qualify for a "special exception." That's the same rule that restricts early withdrawals from tax-deferred retirement accounts, such as IRAs. But now the IRS has tinkered with the rules to provide annuity owners greater flexibility. (IRS Notice 2004-15)

Avoiding the 10 percent pe...(register to read more)

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